Half Yearly Report

RNS Number : 7386X

Personal Assets Trust PLC

21 November 2014

 



To:              RNS                                                                    

From:         Personal Assets Trust plc

Date:          21 November 2014

Interim Report for the Six months ended 31 October 2014 (Unaudited)

Financial Summary

•	Personal Assets Trust plc ("PAT") is an independent investment trust run expressly for private investors.
•	The Company's investment policy is to protect and increase (in that order) the value of shareholders' funds per share over the long term.
•	Over the six months to 31 October 2014 PAT's net asset value per share ("NAV") rose by 1.6% to £338.99 compared to a fall of 3.2% in our comparator, the FTSE All-Share Index. PAT's share price rose by £10.10 to £342.00 over the same period, being a premium of 0.9% to the Company's NAV at that date.
•	During the period, PAT continued to maintain a high level of liquidity.
			% as at 31 October 2014	% as at 30 April 2014
US TIPS			17.0	16.6
UK Index-Linked Gilts			4.7	4.6
Gold Bullion			10.0	10.7
UK cash and cash equivalents			18.5	19.2
Overseas cash and cash equivalents			5.7	4.9
Total			55.9	56.0
•	Over the six months PAT's shares continued to trade close to NAV. We re-issued 20,510 Ordinary shares (adding £7.0 million of new capital) at a small premium to satisfy continuing demand for the Company's shares and bought back 10,100 Ordinary shares (costing £3.4 million) at a small discount.

•

Dividends are paid in July, October, January and April of each year. The first interim dividend of £1.40 per Ordinary share was paid to shareholders on 17 July 2014 and the second interim dividend of £1.40 was paid on 16 October 2014. A third interim dividend of £1.40 per Ordinary share and a fourth interim dividend of £1.40 per Ordinary share will be paid in January and April 2015 respectively, making a total for the year of £5.60 per Ordinary share. Thereafter, the Board will review the level of the dividend.

Key Features

		As at 31 October 2014	As at 30 April 2014
Market Capitalisation		£590.9m	£570.0m
Shareholders' Funds		£585.7m	£573.2m
Shares Outstanding		1,727,857	1,717,447
Liquidity (see fourth bullet point above)		55.9%	56.0%
Share Price		£342.00	£331.90
NAV per Share		£338.99	£333.77
FTSE All-Share Index		3,503.46	3,619.83
Premium/(discount) to NAV		0.9%	(0.6%)
Earnings per Share		£2.30	£4.78
Dividend per Share		£2.80	£5.60

Portfolio as at 31 October 2014

				Shareholders'
		Equity	Valuation	Funds
Holding	Country	Sector	£'000	%
BAT	UK	Tobacco	27,716	4.7
Microsoft	USA	Software	23,086	3.9
Philip Morris	USA	Tobacco	22,032	3.8
Nestle	Switzerland	Food Producer	21,608	3.7
Coca-Cola	USA	Beverages	21,198	3.6
Imperial Oil	Canada	Oil & Gas	19,394	3.3
Dr Pepper Snapple	USA	Beverages	17,806	3.0
Altria	USA	Tobacco	15,623	2.7
Sage Group	UK	Technology	14,494	2.5
Berkshire Hathaway	USA	Insurance	12,582	2.1
Colgate Palmolive	USA	Personal Products	11,831	2.0
Becton Dickinson	USA	Pharmaceuticals	11,788	2.0
Unilever	UK	Food Producer	9,776	1.7
GlaxoSmithKline	UK	Pharmaceuticals	8,923	1.5
Diageo	UK	Beverages	7,513	1.3
American Express	USA	Financial Services	6,746	1.2
Newcrest Mining	Australia	Mining	3,275	0.6
Agnico Eagle Mines	Canada	Mining	2,784	0.5
Total Equities			258,175	44.1
US TIPS	USA		99,742	17.0
UK Index-Linked Gilts	UK		27,486	4.7
Gold Bullion	-		58,311	10.0
UK cash and cash equiv.			108,527	18.5
O'seas cash and cash equiv.			33,489	5.7
TOTAL PORTFOLIO			585,730	100.0

Interim Management Report

Over the half year to 31 October 2014 the net asset value per share ("NAV") of Personal Assets Trust ("PAT") rose by 1.6% while our comparator, the FTSE All-Share Index ("FTSE"), fell by 3.2%. These unmemorable numbers belie a good deal of upwards and downwards movement in markets during the period. After strong gains in equities over the past five years, there is some recognition that the growth discounted in securities prices is not occurring in the real economy. We have been saying for some time that the re-rating in stock markets, particularly since the summer of 2012, needed ultimately to be justified by higher corporate earnings. Since June 2012, however, the S&P 500 price-earnings ratio ("PER") has swollen by 35%, while the FTSE All-Share PER is up 58%. A sizeable amount of the very modest corporate earnings growth during this period has been generated by financial engineering in the form of share buybacks, often using cheap debt. Top line growth remains elusive and the Federal Reserve's withdrawal of quantitative easing (which caused this huge re-rating of stock markets) on 31 October is likely to put equity prices under pressure.

Since April the global economy has shown signs of weakening, and growth and inflation numbers from Europe, Asia and Japan have been disappointing. The US housing market, after the 'buy-to-let' driven rally of 2011-13, is now softening, notwithstanding lower bond yields which should have encouraged buyers. This is an indication of the lack of demand for credit. Loan growth is very depressed for this stage in the cycle and US bank revenues are down 2.5% in the year to June. Five years on, it remains a slow, grinding recovery with little prospect of 'escape velocity'.

During the past six months, portfolio turnover remained low. We took some profits in Becton Dickinson, which announced the purchase of medical technology company CareFusion for $12bn. Although we can see the long term strategic sense for putting the companies together, we are disappointed that Becton, historically an excellent custodian of capital, has chosen to pay such a full price from which returns are likely to be low. We also reduced our stake in GlaxoSmithKline, which is struggling to make the difficult transition from a reliance on profitable legacy drugs to a business built on more durable cash flows from successful vaccine, respiratory and consumer healthcare franchises. We disposed entirely of our modest holding of Greggs, the largest bakery chain in the UK. After a couple of difficult operating years, trading has dramatically improved thanks to the considered actions of the impressive management team. The share price and PER have duly responded and we thought too much future good news was being discounted in what is becoming an increasingly competitive food-on-the-go market. Our modest holdings in mining stocks continued to disappoint and we sold our longstanding stake in Newmont Mining. Its failure to grasp the opportunity to merge Newmont with Barrick Mining earlier this year was the last straw. These sales were counterbalanced by increasing some of our core holdings such as BAT, Coca-Cola, Diageo, Philip Morris and Sage.

Total world debt (public and private), which was 160% of GDP in 2001, reached 215% in 2013 and continues to rise. Such a debt burden inevitably lowers growth, which will ultimately lead to a default on the debt through inflation. Many shareholders ask us where the inflation will come from, particularly when, unlike in the 1970s, labour has little power to demand higher wages. They forget the prospect of inflation by debasement of the currency. An ordered example followed the devaluation of Sterling in 2008, which led to headline levels of inflation of 5.6% by September 2011. A more egregious illustration has recently occurred in Russia, where the rouble has declined in value against Sterling by 25% this year. A Russian student recently interviewed on Radio 4 gave a flavour of the damagingly fast effects of debasement, 'The most painful part is of course food … for example, for a pack [sic] of milk. It was around 50 roubles in mid-August and now you can go and see it for 65, 70; sometimes more than a 50% rise.' The recent temporary upsurge in the forces of deflation is making the debt burden on the world economy ever heavier, and in the absence of strong growth only inflation can in the long run reduce it.

Sebastian Lyon, Investment Adviser

On behalf of the Board,

Robin J Angus, Executive Director

21 November 2014

 

Condensed Group Income Statement

For the six months ended 31 October 2014

	(Unaudited)
	Six months ended
	31 October 2014
	Revenue	Capital
	Return	Return	Total
	£'000	£'000	£'000
Investment income	5,300	-	5,300
Other operating income	276	-	276
Gains on investments held at fair value through profit or loss	-	18,361	18,361
Foreign exchange losses	-	(7,350)	(7,350)
Total income	5,576	11,011	16,587
Expenses	(1,375)	(1,275)	(2,650)
Profit before taxation	4,201	9,736	13,937
Taxation	(223)	-	(223)
Profit for the period	3,978	9,736	13,714
Earnings per share	£2.30	£5.63	£7.93

The column of this statement headed 'Total' represents the Group's Income Statement, prepared in accordance with International Financial Reporting Standards. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

The Group does not have any income or expense that is not included in the profit or loss for the period other than expenses of £2,000 charged directly to the Share Premium account in respect of the issue of the Company's shares in the year ended 30 April 2014. Accordingly the 'profit or loss for the period' is also the 'total comprehensive income for the period'.

Condensed Group Income Statement

For the six months ended 31 October 2013

	(Unaudited)
	Six months ended
	31 October 2013
	Revenue	Capital
	Return	Return	Total
	£'000	£'000	£'000
Investment income	5,569	-	5,569
Other operating income	174	-	174
Losses on investments held at fair value through profit or loss	-	(33,081)	(33,081)
Foreign exchange gains	-	5,439	5,439
Total income	5,743	(27,642)	(21,899)
Expenses	(1,356)	(1,284)	(2,640)
Loss before taxation	4,387	(28,926)	(24,539)
Taxation	(250)	-	(250)
Loss for the period	4,137	(28,926)	(24,789)
Earnings per share	£2.39	(£16.73)	(£14.34)

Condensed Group Income Statement

For the year ended 30 April 2014

	(Audited)
	Year ended
	30 April 2014
	Revenue		Capital
	return		return		Total
	£'000		£'000		£'000
Investment income	11,194		-		11,194
Other operating income	376		-		376
Losses on investments held at fair value through profit or loss	-		(40,827)		(40,827)
Foreign exchange gains	-		13,076		13,076
Total income	11,570		(27,751)		(16,181)
Expenses	(2,725)		(2,539)		(5,264)
Loss before tax	8,845		(30,290)		(21,445)
Taxation	(594)		-		(594)
Loss for the period	8,251		(30,290)		(22,039)
Earnings per share		£4.78	(£17.54)	(£12.76)

Condensed Group Balance Sheet

As at 31 October 2014

	(Unaudited)	(Unaudited)	(Audited)
	31 October	31 October	30 April
	2014	2013	2014
	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss	554,910	534,928	541,151
Net current assets	30,820	48,754	32,086
Net assets	585,730	583,682	573,237
Total equity	585,730	583,682	573,237
Net asset value per Ordinary share	£338.99	£334.75	£333.77

Condensed Group Statement of Changes in Equity

For the six months ended 31 October 2014

		(Unaudited)	(Unaudited)	(Audited)
		Six months	Six months	Year
		ended	ended	ended
		31 October	31 October	30 April
		2014	2013	2014
		£'000	£'000	£'000
Opening equity shareholders' funds		573,237	593,245	593,245
Profit/(loss) for the period		13,714	(24,789)	(22,039)
Ordinary dividends paid		(4,805)	(4,842)	(9,679)
Issue of Ordinary shares		6,958	20,678	24,027
Buy-back of Ordinary shares		(3,374)	(610)	(12,317)
Closing equity shareholders' funds		585,730	583,682	573,237

Condensed Group Cash Flow Statement

For the six months ended 31 October 2014

			(Unaudited)	(Unaudited)	(Audited)
			Six months	Six months	Year
			ended	ended	ended
			31 October	31 October	30 April
			2014	2013	2014
			£'000	£'000	£'000
Net cash inflow from operating activities			1,891	2,332	3,458
Net cash inflow from investing activities			5,732	16,810	12,427
Net cash inflow before financing
activities			7,623	19,142	15,885
Net cash (outflow)/inflow from financing
activities			(1,337)	16,454	2,648
Net increase in cash and
cash equivalents			6,286	35,596	18,533
Cash and cash equivalents at the start of
the period			45,068	9,306	9,306
Realised (losses)/gains on foreign currency			(3,185)	11,018	17,229
Cash and cash equivalents at the end of
the period			48,169	55,920	45,068

1.    The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standard ('IFRS') IAS 34 'Interim Financial Reporting' and the accounting policies set out in the statutory accounts of the Group for the year ended 30 April 2014. The condensed consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 April 2014, which were prepared under full IFRS requirements.

2.    The return per Ordinary share figure is based on the net profit for the six months of £13,714,000 (six months ended 31 October 2013: net loss of £24,789,000; year ended 30 April 2014: net loss of £22,039,000) and on 1,728,358 (six months ended 31 October 2013: 1,728,586; year ended 30 April 2014: 1,727,421) Ordinary shares, being the weighted average number of Ordinary shares in issue during the respective periods.

3.   In respect of the year ending 30 April 2015 the Board has declared a first interim dividend of £1.40 per Ordinary share, which was paid on 17 July 2014, a second interim dividend of £1.40 per Ordinary share, which was paid on 16 October 2014, and a third interim dividend of £1.40, which will be paid on 15 January 2015. In respect of the year ended 30 April 2014 the Board declared four interim dividends of £1.40 per Ordinary share. This gave a total dividend for the year ended 30 April 2014 of £5.60 per Ordinary share.

4.   At 31 October 2014 there were 1,727,857 Ordinary shares in issue (31 October 2013: 1,743,649; 30 April 2014: 1,717,447). During the six months ended 31 October 2014 the Company re-issued 20,510 Ordinary shares from Treasury and bought back 10,100 Ordinary shares to be held in Treasury for future re-issue.

5.    The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single segment of business, being that of investing in equity shares, fixed interest securities and other investments, and that therefore the Group has only a single operating segment.

6.    The Group held the following categories of financial instruments as at 31 October 2014:

	Level 1 £'000
Investments	554,910
Current liabilities	(1,897)
Total	553,013

The above table provides an analysis of investments based on the fair value hierarchy described below and which reflects the reliability and significance of the information used to measure their fair value. The levels are determined by the lowest (that is the least reliable or least independently observable) level of impact that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 reflects financial instruments quoted in an active market.

Level 2 reflects financial instruments the fair value of which is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique the variables of which include only data from observable markets.

Level 3 reflects financial instruments the fair value of which is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data.

There were no transfers of investments between levels in the period ended 31 October 2014.

The following table summarises the Group's Level 1 investments that were accounted for at fair value in the period to 31 October 2014.

	Group (Level 1) £'000
Opening book cost	495,091
Opening fair value adjustment	46,060
Opening valuation	541,151
Movement in the year: Purchases at cost Effective yield adjustment	226,874 1,739
Sales - proceeds           - losses on sales	(233,215) (4,642)
Increase in fair value adjustment	23,003
Closing valuation at 31 October 2014	554,910
Closing book cost	485,847
Closing fair value adjustment	69,063
Closing valuation at 31 October 2014	554,910

Other aspects of the Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 30 April 2014.

The fair value of the group's financial assets and liabilities as at 31 October 2014 was not materially different from their carrying values in the financial statements.

7.   These are not full statutory accounts in terms of Section 434 of the Companies Act 2006 and are unaudited. Statutory accounts for the year ended 30 April 2014, which received an unqualified audit report and which did not contain a statement under Section 498 of the Companies Act 2006, have been lodged with the Registrar of Companies. No full statutory accounts in respect of any period after 30 April 2014 have been reported on by the Company's auditors or delivered to the Registrar of Companies.

Statement of Principal Risks and Uncertainties

The Board believes that the principal risks to shareholders, which it seeks to mitigate through continual review of its investments and through shareholder communication, are events or developments which can affect the general level of share prices, including, for instance, inflation or deflation, economic recessions and movements in interest rates and currencies.

Other risks faced, and the way in which they are managed, are described in more detail under the heading Principal Risks and Risk Management within the Strategic Report in the Company's Annual Report for the year ended 30 April 2014.

The Company's principal risks and uncertainties have not changed since the date of the Annual Report and are not expected to change for the remaining six months of the Company's financial year.

Related Party Transactions

During the period the Company paid £15,000 for the rental of the Executive Office to Rushbrook & Co LLP, of which Frank Rushbrook is a partner. The notice period on the lease is six months.

Directors' Responsibility Statement in Respect of the Interim Report

We confirm that to the best of our knowledge:

·   the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

·   the Investment Adviser's Report includes a fair review of the information required by the Disclosure and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;

·   the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

·   the condensed financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board,

Hamish N Buchan, Chairman

21November 2014

For further information contact:

Sebastian Lyon                      

Investment Adviser

Tel: [phone]

Robin Angus

Executive Director

Tel: [phone]

Steven Davidson

Executive Office

Tel: [phone]

 

END

 

 

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